Media Convergence: Advantages and Disadvantages

Media Convergence: Advantages and Disadvantages Introduction The electronic highway of information that is girdling the world has brought an end to the Gutenberg era. Transition from a â€Å"stones throw away† world to a â€Å"click away† world has changed the way we live, interact, socialize and work. It has also changed the way we perceive culture, people, processes, objects i.e. life in short. The high speed network fabric has rendered geographical boundaries irrelevant. A few years back it may have sounded like an idea by Slartibartfast from the legendary planet of Margarathea(from the Hitchhikers Guide to the Galaxy) but with the advent of technological platforms this aint a far-fetched idea any longer but is the reality of the present times. It all began with the technological outburst which led to the availability of various platforms that helped to efficiently maximize the transfer of information. The degree of separation between the company and the consumer has reduced considerably. Branding Redefined Branding is no longer the privilege of the larger conglomerates or the big pockets. With the advent of technology and the significant reduction in the costs associated with branding, smaller companies that are taking branding seriously have cropped up like mushrooms. The competition is much tougher and there is this race of owning properties both online and real to cut out the competition. In the context of sports we can take the example of the Indian Premier League (IPL) the largest sport event in India this year. So there would be sponsors for IPL who would demand exclusivity. This is applicable across industry sectors- say a sponsor of something like MTV Roadies who would end up owning the content rights of the show- just to kick competition out of the advertising sphere for the show. The questions that loom large are â€Å"Has the traditional media died?† or â€Å"Has it just reduced to a mere supporting media?† or â€Å"Have the rules of the game changed?† or â€Å"Is it a new game altogether?† Brand experience is both emotional and functional. It is not only a promise that a company makes, or an assurance to the quality of the product as mentioned by Aaker(1991) but it also has a psychological role to play. They make you feel good about yourself or are an expression of yourself. They also fulfil social needs like a sense of affiliation or belongingness to a community or a group of people who think alike. The very fact that names like Arsenal, Manchester United of the English Premier League (EPL) are household names in a country like India where nothing but Cricket sells, shows the growth of sports branding. This phenomenon has been more evident in the recent past all because of the media convergence (Kerr,2008). There are fan communities where people can discuss their teams, interact with people with similar sentiments, vent their anger when a player does not perform and share their grief when their team loses. The arrival of sport channels has provided a medium to the broadcasters to telecast all kinds of sports and not just cricket. There is as much of motor sports, basketball, tennis and football as there is cricket. The question that pops up next is, what is the brand? Is it the player, the club or is it Football the game itself? If yes, how has a little white ball and a green field inspired the most successful brand principles that has led to true brand management? The concept of a sport being a brand may sound a little ridiculous at first, but the figures dont lie. A Brand Finance survey conducted in 2005 revealed that Manchester United had a brand value of  £197m, Liverpool a value of 156m, Chelsea  £137m and Arsenal a brand value of  £115mn. Indian Premier League (IPL) The Sport Renaissance in India India has two primary religions Bollywood and Cricket. The only differentiating factor that sets sports entertainment apart from the rest is the passion that it commands and the real time execution. The cricket economy world over is 1bn USD to which India contributes to more than 60%. This includes revenues from ticket sales, sponsorship, endorsements and broadcasting rights. In 2008 the remote wars in the households in India had struck a truce as all the members in the family were glued onto one thing -the IPL for their own different reasons. Be it the glamour, be it the sport, be it the uniqueness of the concept or be it the hype around the event, IPL redefined entertainment. The General Entertainment Channels (GECs) observed a huge dip in the Television Rating Points. Nothing had grabbed the attention of the masses the classes at such a scale ever before. Next year IPL struck again-grander and better. The GECs delayed the launch of new shows as they were sure they had nothing that could compete against the IPL. Such is the potential for the Sport Industry in India. The IPL 09 had rung the death knell of the whole arena of player management in India as small size sponsors signed the best of the players in the Indian team for a year at dead cheap prices. This fiasco happened due to the deals that the IPL Franchise had with these sponsors and the players were bound by it. This was the reason why we saw Master Blaster Sachin, Zaheer and Harbhajan promoting Luminous Invertors and Sehwaag advertising for Jetkings an equipment hardware manufacturer. Is it truly about club over country? The club format brought to the public light through the IPL has shattered the myth that sports in India is about national identity and patriotism? In the auction the highest bid jersey was not that of Tendulkar or Ganguly, it was Khans 11. It has given rise to a lot of questions What is it that makes a person support the Mumbai Indians or the Kolkatta Knight Riders? Is it Sachin, Sehwag, Shilpa or Shahrukh? Is it the success of the team or the strategy that they employ when at the field? The other areas of concern would be has this concept of IPL revolutionized the way sport is consumed in India? Will the spectators be interested in an IPL match over India vs Pakistan Test Match? The Moment of Truth in the IPL that made its success eminent was the fact that the crowd actually cheered when Sachin was bowled by Bret Lee. This is an indicator of the fact that sports in India is in the throes of evolution. People are open to accepting it as an entertainment option than a patriotic struggle. Literature Review What is Media Convergence? Britannica Encyclopaedia says, â€Å"Media Convergence is a phenomenon that involves the interlocking of computing and information technology companies, telecommunication networks and content providers from the various media platforms like magazines, newspapers, radio, television, films and the likes. It also says that Media Convergence is the confluence of the 3 Cs Communication, Content and Computing†. According to Henry Jenkins who is a highly respected media analyst and one of the foremost leading experts on the convergence culture paradigm, as well as, the DeFlorz Professor of Humanities and the Founder and Director of the Comparative Media Studies Program at MIT states that, â€Å"the flow of content across multiple media platforms, the cooperation between multiple media industries, and the migratory behaviour of media audiences is what constitutes media convergence†. It is not just the confluence of the traditional and the new digital media but it is also about the unpredictable ways of interaction and association of the consumers and producers of media. It is not solely technological but there is a huge gamut of socio- cultural paradigm shifts that have changed the way the consumer evaluates a product, makes his decision and his social interactions to seek information. It also includes the experience that the producer of the media makes the consumer go through (Viau, 2 001). The world is witnessing the new forms of media in which they have a larger control over the types of feeds they receive, the ease with which they can interact with not just the media but with the media provider as well. This has brought a whole new dimension of competition to the traditional media platforms. This has also led to a lack of dependence of the consumers on any particular media which in turn translates to lesser loyalty. Benefits of Media Convergence: The content creators can use the platform to generate customized content that is targeted at a specific group. This has also brought about a change in the dynamics of economy as distribution and cost structure is not the same in traditional media. It has brought about a sense of Post Modernism to the field of media consumption where the consumer is not an audience but is also a co creator. This has also brought about a change in the experience that a person goes through by consuming media. It has transcended the limitations of the traditional media. Negatives of Media Convergence: This has brought in a certain amount of unpredictability in the responses that a media would receive. With the audience being exposed to a plethora of media platforms it gets tough to understand what has had what kind of effect on the consumer. Media Convergence has brought about a shift in the control that the content creator had over its property. With the advent of blogs, mobiles and emails the consumers are exposed to large amount of unbranded content. This has led to an increase in the competition for consumers time and attention that the content creators face. Is Sport an Industry? Does industry necessarily comprise of a product or service? NO! It could be an offering that is neither of the two but is consumed by the people. Entertainment is an industry and so is religion. Thus Sport is an industry too which comprises of selling sports or selling through sports. Be it the events, leagues and the tickets to view these or the marketing of products through sports- which would include merchandize, licensing and sponsorship (Mason, 1999). The figure below represents a model of the Sport Industry Parallels can be drawn between Sports and a Consumer Product. Below is a representation of the value chain of the sports industry. Sport as a product can be consumed in different ways- playing, watching, reading or being entertained by it. The level of involvement of the consumers -fans in the sports jargon, differs for each of the way. â€Å"Football is a million dollar industry. The sport has a long heritage in UK and has the most prestigious premiership in the world and has attracted players from all four corners of the globe. Most importantly, football inspires passion and the big four, Chelsea Arsenal, Manchester United and Liverpool FC, are among the most valuable brands in the country†, says Ruth Mortimer- a sports marketing blog owner. What is a Sports Brand? What constitutes a sports brand is questionable. It depends on what the product is? Is the league a product or is it the clubs in the league that constitute the product (Goldman, 1989; Grauer, 1983; 1989; Gray, 1987)? It is argued that the league can be taken as a cartel of these entities i.e. the clubs. This would determine the marketing strategies for the league and the clubs. But whatever the case be both are brands in themselves. If football is the category EPL can be taken as the Umbrella Brand and the clubs like Manchester United, Chelsea and the likes would constitute the sub brands. Even the players would be brands in their own respect. If Beckham is the brand then it is dedicated, suave and down to earth (Milligan, 2004). Manchester United stands for excitement and great entertainment all so because right from Cantona to Giggs to Rooney and Ronaldo, the club has stalwarts who are both excellent at the game and are trend setters in their own way. Hence there is a clearly identifiable brand proposition (Baeur et al, 2005). How are sport brands different from the product brands? NBA Franchise was the first to realize the potential of brand building and what organized marketing can do to fuel revenue generation. Andy Mulligan(2009), says, â€Å" Brands are often, somewhat lazily by some people, equated with pure commercialism and worse still with a kind of fluffy marketing that is about spin and not substance.† He is of the view that though Sport is a huge industry, managing teams is not in the least similar to managing a business. The very premise that a business is a tradable property sets it apart. A team is a repository of emotional associations that fans world over share and build. Hence sports team is not a business but it could definitely be a brand as its an identity and a promise that the consumers believe in and an experience that they live. The association of a spectator with a specific club is enhanced by the collaborative play of â€Å"local, national or emotional identifications† (Whannel, 1992, p. 199) or by the un-certainty of the outcome of the game (Clapson, 1992).The degree of association of the club and the spectator is so high that he develops a strong sense of affiliation with the club. He feels proud and celebrates the victories and is all gloomy over the losses. This phenomenon has been termed as Basking in Reflected Glory (BIRG) (Cialdini et al., 1976). Media and Sports The globalization, the opening up of trade barriers, this era of media convergence, the popularity of the internet, and the ever increasing number of netizens has revolutionized the sports industry. The advancements in communication technology provide omniscient access to all kinds of leagues that a team plays in. This coupled with the 24X7 dedicated sport channels has opened up a whole new arena of entertainment. Today the English Premier League and Formula 1 are as popular in the Asia Pacific as they are in Europe. Earlier people used to watch just the league finals but now they have the option to follow their favourite teams irrespective of their geographic location and time. The qualifiers for the Champions League or the NASCAR have a sizeable number of viewers as does the grand finale. When Real Madrid signed the superstar David Beckham, the live telecast of the ceremony attracted more than 2 million eyeballs (Hatfield, 2003). Games of Houston Rockets had a viewership of over 30 million Chinese viewers who tuned in just to watch Yao Ming- their fellow citizen battle the National Basketball Associations (NBA) finest (Larmer, 2005). Manchester United has a huge fan base of close to 24 million in China alone which is more than the number of viewers in Britain. More than half a billion people tune in to watch the weekly games world over. (Datson, 2004). The popularity that these sports command has attracted the attention of sponsors and advertisers. The teams themselves have realized the large potential that the world of marketing has in store. They have capitalized on this opportunity and the audience sentiment by branding themselves. They have a prominent presence across the various levels, be it Below the Line or Above the Line. We have Team Anthems, Jerseys, Videos, Events, Parties, Posters- ALL OF IT! Manchester Uniteds branded licensed jerseys sell more in the USA as compared to all the other Major League Soccer (MLS) clubs combined. The number of hardcore fans has been approximated to a good 4 million in North America alone. Japanese tour groups spent US$500 million on just the tickets and souvenirs from the New York Yankees. All so to watch Hideki Matsui the outfielder from Japan. This was more than five times what the presence of Ichiro Suzuki in Seattle Mariners generated (Whiting, 2003). Internet statistics tell the same story. There are more satellite fans to the NBA. 40% of visitors to the website log on from outside the States and a humongous 20% of the licensed merchandise is sold overseas (Eisenberg et al., 2003). Global Sports Industry Recession When the whole world is in the throes of recession, sports is one industry sector that has not been as badly affected as the others and was quick enough to bounce back within a year. Loss of sponsorship, events being cancelled, biggies withdrawing from the arena; these are some of the development the sports industry has witnessed in the recent past. On one hand we have been witnessing things like Honda, Kawasaki and Subaru withdrawn from motorsport Manchester United lose  £56 million AIG shirt sponsorship US National Football League indicates it will cut workforce by 10% Tiger Woods loses five year $8 million endorsement contract with Buick Vancouver 2010 Olympic Games takes out additional $800 million loan to cover financial shortfall 2009 Indian Masters golf tournament cancelled Arena Football League in US cancelled for the season On the other hand the world witnessed the largest ever viewership and increasing advertising spend TV viewership increased to 1 million (97.4m to 98.4m); advertising investment up $20 million (from $186 million to $206 million) at the Super bowl 2009 Manchester City sold for  £200million+ in summer 2008 Premier League signs new live TV rights deal for  £1.78 billion, surpassing previous deal Badminton England signs record-breaking sponsorship deal with Yonex Manchester United and City will both sign lucrative, record-breaking shirt sponsorship deals if the rumors are to be believed Sports Scenario in India The Sports arena in India has been dominated by cricket for quite some time now. But with the converging media and the Westernization sports like soccer, basketball, motor racing have observed an increasing fan base. A look at the Audience and Viewership data from TAM is enough to prove this point. Cricket is followed by soccer, tennis and wrestling. The reason for the monopoly of cricket is simple. Cricket is the only sport where India has made a mark in the International arena and which still holds hope for Indians to win over others. This has provided it the status of religion in India. The other popular sports would include Soccer, Tennis and Motor Sports as revealed by a TAM report. This marks the herald of a whole new era of sports entertainment and marketing. Below is an overview of the size of the sports industry in India IPL- The Story so Far India has two religions Bollywood and Cricket and the whole country was awestruck when the two joined hands. IPL is all about glamour, excitement and passion. It works on a franchise model where each of team is owned by an industrialist, a celebrity or is a joint venture. There was an auction to own the clubs and then there was an auction to make the team and select the players. This was the golden time for the Cricket Board in India as it made a lot of profits. Franchise rights were tendered with a reserve price of USD 50mn for 10 yrs. The owners get a percentage of the revenue that the team earns and has other streams like merchandising to mint money from too. The primary difference between the IPL and the English Premier League was the fact that in IPL there was a cap on the amount of money that could be spent in building a team. Unlike EPL where the teams that are backed by the deeper pockets manage to buy the best of the players and end up winning the tournaments and the others are a t a competitive disadvantage. Apart from this sponsorship on Television and the ground constitutes a huge chunk of the revenues that the board and the team earn. The IPL website had 50mn page views in the first week and had received 530,000 column cm of stuff written about it in the newspapers in the Season 1. The opening match in Delhi had a Television Rating Point(TRP) of 7.19 which was the highest for any event in India ever. It had a TRP of 6.7 amongst women which is a considerable number considering the fact that Indian women are generally not much into watching sports. Thus we see that it aint just a mere entertainment option but is an industry in itself. The Need Gap The clubs are no longer just teams whose players lend it its brand value. There is a huge industry of sports merchandize, events and the likes that thrives on this its a culture in itself. Keeping this in mind I plan to study formats like the EPL and NBA which are brands in themselves and arrive at the factors that lead to the success of such brands. India as a nation provides huge potential to market these brands. It is not just the passion for the sport or the sentiment of belongingness to a particular nation that commands loyalty. There are several other factors that have converted sports clubs or teams into one of the most valued brands world over. Therefore there is a knowledge gap that exists. It is to study what these factors are and what are the things that affect these factors? Parallels can be drawn between the sports industry in India and in nations abroad which in turn would help marketing sports, teams and clubs as brands in a nation like India- which is a burgeoning economy and holds great prospects for such brands. Research Objectives To understand how sports branding has grown as an industry in the West, taking EPL, NBA, Formula 1 as a case study. To understand the consumer perception of sports as a brand in India by conducting a research amongst the audiences To understand how media convergence has led to the popularity and the cult like fan following of Western sports in India To analyze the Indian sports industry and devise a marketing strategy for building a sports brand in the Indian context Research Methodology Research Design A fan â€Å"represents an association from which the individual derives considerable emotional and value significance† (Madrigal, 1995, pp. 209-210). Thus it is not equivalent to being a spectator. Therefore to understand their behaviour and attitude statistical data about what they watch and how often do they watch does not help in the quest to understand what makes them a fan. Therefore the research methodology would be a mix of quantitative and qualitative as both have their own advantages and contributions to making this study more fruitful. Quantitative studies use the deductive logic to explain social facts (Horna, 1994, p. 121) and thus would help in understanding the behavioural component. This would help in understanding what the crowd constitutes of and what are the primary scalable attitudes exhibited by them. But this fails to explain the underlying reasons for such behaviour, things that differentiate a fan from a spectator. Thus, qualitative study becomes important too. Qualitative methods help in exploring the cognitive components. It also helps explaining the longitudinal behaviour of things rather than a mere snapshot of the present scenario which could be gauged from the quantitative. In depth interviews would be the preferred technique as we seek to understand the reasons why an individual behaves the way he does and not really the collective opinion of a group. The quantitative research can be carried out by administering a questionnaire online and in person. Some statistics can also be gathered from the various databases and research data available publicly. Sampling The research aims to understand how the emergence of media affected the attitude of the people towards Sports in general and the club culture in particular. It is conducted to understand what is it that makes them commit their loyalties to a particular team and how does this affect the economics of the industry. Only SEC A and B are considered based on the assumption that the SECs lower than this dont contribute much. Females have been considered as recent researches show that there are an increasing number of women who have started following sports and participating in it. Hence their opinion and perception could be a valuable contribution. Expected Contribution After studying the responses from the sample, the research would help arrive at answers to various questions regarding the future of the sports industry in India. Questions like where is the industry headed? What kind of sport would sell? How do the sports brands communicate to the people? How has the convergence of media affected their understanding of the sports industry? Apart from this it would help brand managers and sports consultants to design the branding strategies for the various sports brands so that they can sustain themselves in this highly competitive and unpredictable market. Secondary Research: Marketing of Professional Sports Professional sports started with the leagues specializing in one kind of sport which would run for a season and the league enjoyed a monopoly in the arena. But with the advent of infrastructural facilities and increased investments in the industry of sport management there are multiple leagues fighting for the share of eye and heart. They fight for consumers who have a plethora of other entertainment options to select from. Thus the competition in not limited to just the sports industry but is with the larger entertainment industry (Grauer, 1989). The one thing that makes professional sports appealing to the audiences is the uncertainty of the results. The adrenaline rush that the spectator experiences with every passing minute is dramatic and cannot be derived from staged content. â€Å"Like other forms of entertainment, sport offers a utopia, a world where everything is simple, dramatic and exciting, and euphoria is always a possibility Sport entertains, but can also frustrate, annoy and depress. But it is this very uncertainty that gives its unpredictable joys their characteristic intensity (Whannel,1992, p. 199)†. The intensity of appeal and engagement with the sport is further enhanced by the association that an individual has with the sport and if there are stakes that he has in the outcome. The concept of Basking in Reflected Glory(BRIG) talks about the highest degree of association where a fan is a loyal even if the team does not perform well(Cialdini, 1976). Initially the sports leagues were owned by individuals or entrepreneurs but with the growing popularity it has achieved the status of an industry and has been successful in attracting corporate and has taken a more formal structure than a mere source of entertainment. It is due to the involvement of these corporations outside the realm of professional sports management that has brought in newer revenue streams like merchandizing and sponsorships. This model of corporate ownership of a league or a club was started in the USA and was later adopted by the leagues in the continents of Europe and Australia. The biggest advantage of this is that the teams are backed by deep pockets and investment into a team is a part of the investment portfolio of the corporation and not the main business area. Companies like Blockbuster, Disney and Turner from the North American industry of entertainment and broadcasting have benefitted from their presence in professional sports (Cousens and Slack, 1996) . This has also helped Rupert Murdoch to extend his empire across the globe. This has also helped in attracting better players as the salaries are far better, improved facilities to train and huge advertising expenditures to build the fan base. The corporations are not buying into the uncertainty of the game by owning a team but are using the reputation of the team to fuel their interests. For example the treaty between FOX network and the National Football League was not really a profitable venture for the broadcast network as it had to overbid to acquire the rights but as Murdoch puts it, â€Å"it has made [FOX] a real network in the US†(Swift, 1995). Globalization of the Leagues â€Å"Professional sports leagues are now a part of the powerful recreation and entertainment sector of the economy. In addition, sports have â€Å"delocalised†; the global marketplace has made sports less attached to specific places, particularly those which have world-wide appeal, such as football and basketball (Euchner, 1993)†. Satellite TV and Internet has sped up the delocalization of professional sports by making the content available across the globe in real time. The total income of the â€Å"Big 5† football leagues in Europe in the year 2005-06 was  £12.6 billion ($18.54 billion) (Deloitte and Touche 2007), out of which the Barclays English Premier League(EPL) was the largest contributor, generating revenues as high as à ¢Ã¢â‚¬Å¡Ã‚ ¬ 2 billion. The most sought after customers of the industry would be the fans as they are loyal and facilitate generating the revenues required to rope in the best players and management. The media analysts refer the players, the clubs and the leagues as the â€Å"brand† (Globalisation of the league, Dr. Bridgewater, 2007). The brands in this industry are not same as the rest but there are strategies that remain the same. When a FMCG brand has to be made global, what companies generally do is start operations in the country where they would like to have a presence. Similarly, the leagues involve other nations or players that have a different nationality to increase the audience base which in turn would lead to building up the fan base which constitutes the target segment for the merchandise. For example the National Football League (NFL) in the USA announced the first competitive game between the Miami Dolphins and the New York Giants in October 2007, more than a 50,000 tickets were sold within 3 days of the announcement. The buyers comprised of local and expatriate fans. This is representative of the fact that there is huge potential in this industry sector. The number of â€Å"E Loyals†- people who dont hold a season ticket or have been to watch a live match but support the game and the club as they have been exposed to it online or on TV- has been rising in the last few years. They are a segment that is as likely to buy the merchandise as a fan who is a regular at the stadium. Pennants, caps, shirts, flags, bands and other team branded articles are what have led to an increase in the revenues and facilitated penetration in other geographic markets (Cousens and Slack, 1996). English Premier League (EPL) -A Case Study English Premier League is a leading association of professional football clubs in the European Union. It has 20 clubs that play in the league every year and follows the system of relegation. Each of these clubs is a shareholder to the league. The EPL came into existence in 1992 when the First Division in the Football League decided to part ways from the Football League as it had struck a lucrative deal for television broadcast rights. It has the largest revenues in the football arena, close to a $4mn in 2007-08. It is perceived to be more glamorous, entertaining and action centred as compared to the rest of the European Leagues like the Serie A and La Liga in Spain. Premier League has undoubtedly grown to be a global brand. The global fan base of the leading international football brands such as Real Madrid and Manchester United runs in millions of British Pounds and â€Å"shows no sign of waning† (Deloitte â€Å"Football Money League†,2008) What is it that determines a persons identification with a club? A Research conducted in 2002 has identified 5 important factors that govern the association of fans with the team. These are primarily the support that the team gathers at the venue the management of the team the traditions, values, legacy that it entails the social entertainment factor i.e. the fan community that it h

Euroland Food S.a

UVA-F-1356 Euroland Foods S. A. ACCESSING YOUR DOCUMENT(S) Please follow these instructions to successfully access your document(s): 1. Enter your email address and click Submit. Note: Your email is the email address used to create your Darden Business Publishing account when you placed your on-line order. 2. Agree to the Terms of Use; doing so will permit you to unlock the document. 3. Select â€Å"Allow† to enable the PDF document to communicate with the external servers. (Failing to â€Å"Allow† will render the document to remain inaccessable. ) DOCUMENT EXPIRATION Our electronic delivery system is a convenient way for ou to immediately access your document and print it, while always being able to access the most current version. This document will expire in 90 days after you first open it. When the expiration date passes, the document will be locked and inaccessible, so be sure to print your hard copy if you require it. After the document is unlocked, you will be ab le to view and print it for 14 days off-line; after that, you must go to the â€Å"My Account† section of DardenBusinessPublishing. com and log into the document under â€Å"Digital Downloads†. ? Automatically sign me into this document in the future. (Do not select this when using a public computer)TERMS OF USE †¢ I understand and agree that this document will be active for viewing and printing for 90 days from the date I first open it. After 90 days, I will receive an expiration notification, and I will no longer have access to the electronic document. †¢ I understand that I may access this document on up to two different computers within the 90-day active period. †¢ I agree not to forward this document to anyone else. †¢ I agree to print only one copy of this document for my personal use. †¢ I agree to print multiple copies only if I have already purchased copyright permissions for the exact number of copies I wish to make.Document ID: 2012 -1-23 ( Version 2. 6. 0 B uild The protectedpdf technology is  © Copyright 2006 Vitrium Systems Inc. All Rights Reserved. Patents Pending. UVA-F-1356 Version 1. 1 EUROLAND FOODS S. A. In early January 2001, the senior management committee of Euroland Foods was to meet to draw up the firm? s capital budget for the new year. Up for consideration were 11 major projects that totaled more than (euro) EUR316 million. Unfortunately, the board of directors had imposed a spending limit on capital projects of only EUR120 million; even so, investment at that rate would represent a major increase in the firm? current asset base of EUR965 million. Thus, the challenge for the senior managers of Euroland Foods was to allocate funds among a range of compelling projects: new-product introduction, acquisition, market expansion, efficiency improvements, preventive maintenance, safety, and pollution control. The Company Euroland Foods, headquartered in Brussels, Belgium, was a multinational producer of high-quality ice cream, yogurt, bottled water, and fruit juices. Its products were sold throughout Scandinavia, Britain, Belgium, the Netherlands, Luxembourg, western Germany, and northern France. (See Exhibit 1 for a map of the company? marketing region. ) The company was founded in 1924 by Theo Verdin, a Belgian farmer, as an offshoot of his dairy business. Through his keen attention to product development and shrewd marketing, the business grew steadily over the years. The company went public in 1979, and, by 1993, was listed for trading on the London, Frankfurt, and Brussels exchanges. In 2000, Euroland Foods had sales of almost EUR1. 6 billion. Ice cream accounted for 60% of the company? s revenue; yogurt, which was introduced in 1982, contributed about 20%. The remaining 20% of sales was divided equally between bottled water and fruit juices.Euroland Foods? s flagship brand name was ? Rolly,? which was represented by a fat dancing bear in farmer? s clothing. Ice cream, the company? s leading product, had a loyal base of customers who sought out its high-butterfat content, large chunks of chocolate, fruit, nuts, and wide range of original flavors. This case was prepared by Casey Opitz and Robert F. Bruner, Dean and Charles C. Abbott Professor of Business Administration, and draws certain elements from an antecedent case by them. All names are fictitious. The financial support of the Batten Institute is gratefully acknowledged.It was written as a basis for class discussion rather than to illustrate effective or ineffective handling of an administrative situation. Copyright 2001 by the University of Virginia Darden School Foundation, Charlottesville, VA. All rights reserved. To order copies, send an e-mail to [email  protected] com. No part of this publication may be reproduced, stored in a retrieval system, used in a spreadsheet, or transmitted in any form or by any means? electronic, mechanical, photocopying, recording, or otherwise? without the per mission of the Darden School Foundation. -2- UVA-F-1356 Euroland Foods sales had been static since 1998 (see Exhibit 2), which management attributed to low population growth in northern Europe and market saturation in some areas. Outside observers, however, faulted recent failures in new-product introductions. Most members of management wanted to expand the company? s market presence and introduce more new products to boost sales. Those managers hoped that increased market presence and sales would improve the company? market value. The company? s stock was currently at 14 times earnings, just below book value. This price/earnings ratio was below the trading multiples of comparable companies, and it gave little value to the company? s brands. Resource Allocation The capital budget at Euroland Foods was prepared annually by a committee of senior managers, who then presented it for approval to the board of directors. The committee consisted of five managing directo rs, the president directeur-general (PDG), and the finance director. Typically, the PDG solicited investment proposals from the managing directors.The proposals included a brief project description, a financial analysis, and a discussion of strategic or other qualitative considerations. As a matter of policy, investment proposals at Euroland Foods were subject to two financial tests: payback and internal rate of return (IRR). The tests, or hurdles, had been established in 1999 by the management committee and varied according to the type of project as shown in Table 1. Table 1. Project hurdles. Minimum Acceptable IRR Maximum Acceptable Payback Years 1. New product or new markets 12% 6 years 2. Product or market extension 10% 5 years 3.Efficiency improvements 8% 4 years 4. Safety or environmental No test No test Type of Project In January 2001, the estimated weighted-average cost of capital (WACC) for Euroland Foods was 10. 6%. In describing the capital-budgeting process, the finance director, Trudi Lauf, said: We use the sliding scale of IRR tests as a way of recognizing differences in risk among the various types of projects. Where the company takes more risk, we should earn more return. The payback test signals that we are not prepared to wait for long to achieve that return. -3- UVA-F-1356 Ownership and the Sentiment of Creditors and Investors Euroland Foods? s 12-member board of directors included three members of the Verdin family, four members of management, and five outside directors who were prominent managers or public figures in northern Europe. Members of the Verdin family combined owned 20% of Euroland Foods? s shares outstanding, and company executives combined owned 10% of the shares. Venus Asset Management, a mutual-fund management company in London, held 12%.Banque du Bruges et des Pays Bas held 9% and had one representative on the board of directors. The remaining 49% of the firm? s shares were widely held. The firm? s shar es traded in Brussels and Frankfurt, Germany. At a debt-to-equity ratio of 125%, Euroland Foods was leveraged much more highly than its peers in the European consumer-foods industry. Management had relied on debt financing significantly in the past few years to sustain the firm? s capital spending and dividends during a period of price wars initiated by Euroland. Now, with the price wars finished, Euroland? bankers (led by Banque du Bruges) strongly urged an aggressive program of debt reduction. In any event, they were not prepared to finance increases in leverage beyond the current level. The president of Banque du Bruges had remarked at a recent board meeting: Restoring some strength to the right-hand side of the balance sheet should now be a first priority. Any expansion of assets should be financed from the cash flow after debt amortization until the debt ratio returns to a more prudent level. If there are crucial investments that cannot be funded this way, then we should cut th e dividend!At a price-to-earnings ratio of 14 times, shares of Euroland Foods common stock were priced below the average multiples of peer companies and the average multiples of all companies on the exchanges where Euroland Foods was traded. This was attributable to the recent price wars, which had suppressed the company? s profitability, and to the well-known recent failure of the company to seize significant market share with a new product line of flavored mineral water. Since January 2000, all the major securities houses had been issuing ? sell? recommendations to investors in Euroland Foods shares.Venus Asset Management had quietly accumulated shares during this period, however, in the expectation of a turnaround in the firm? s performance. At the most recent board meeting, the senior managing director of Venus gave a presentation, in which he said: Cutting the dividend is unthinkable, as it would signal a lack of faith in your own future. Selling new shares of stock at this dep ressed price level is also unthinkable, as it would impose unacceptable dilution on your current shareholders. Your equity investors expect an improvement in performance. If that improvement is not forthcoming, or worse, if investors? opes are dashed, your shares might fall into the hands of raiders like Carlo de Benedetti or the Flick brothers. 1 1 De Benedetti of Milan and the Flick brothers of Munich were leaders of prominent hostile-takeover attempts in recent years. -4- UVA-F-1356 At the conclusion of the most recent meeting of the directors, the board voted unanimously to limit capital spending to EUR120 million in 2001. Members of the Senior Management CommitteeSeven senior managers of Euroland Foods would prepare the capital budget. For consideration, each project had to be sponsored by one of the managers present. Usually the decision process included a period of discussion followed by a vote on two to four alternative capital budgets. The various execu tives were well known to each other: Wilhelmina Verdin (Belgian), PDG, age 57. Granddaughter of the founder and spokesperson on the board of directors for the Verdin family? s interests. Worked for the company her entire career, with significant experience in brand management. Elected ? European Marketer of the Year? n 1982 for successfully introducing low-fat yogurt and ice cream, the first major roll-out of this type of product. Eager to position the company for long-term growth but cautious in the wake of recent difficulties. Trudi Lauf (Swiss), finance director, age 51. Hired from Nestle in 1995 to modernize financial controls and systems. Had been a vocal proponent of reducing leverage on the balance sheet. Also, voiced the concerns and frustrations of stockholders. Heinz Klink (German), managing director for Distribution, age 49. Oversaw the transportation, warehousing, and order-fulfillment activities in the company.Spoilage, transport costs, stock-outs, and control systems w ere perennial challenges. Maarten Leyden (Dutch), managing director for Production and Purchasing, age 59. Managed production operations at the company? s 14 plants. Engineer by training. Tough negotiator, especially with unions and suppliers. A fanatic about production-cost control. Had voiced doubts about the sincerity of creditors? and investors? commitment to the firm. Marco Ponti (Italian), managing director of Sales, age 45. Oversaw the field sales force of 250 representatives and planned changes in geographical sales coverage.The most vocal proponent of rapid expansion on the senior-management committee. Saw several opportunities for ways to improve geographical positioning. Hired from Unilever in 1993 to revitalize the sales organization, which he successfully accomplished. Fabienne Morin (French), managing director for Marketing, age 41. Responsible for marketing research, new-product development, advertising, and in general, brand management. The primary advocate of the re cent price war, which, although financially difficult, realized solid gains in market share. Perceived a ? window of opportunity? or product and market expansion and tended to support growth-oriented projects. Nigel Humbolt (British), managing director for Strategic Planning, age 47. Hired two years previously from a well-known consulting firm to set up a strategic planning staff -5- UVA-F-1356 for Euroland Foods. Known for asking difficult and challenging questions about Euroland? s core business, its maturity, and profitability. Supported initiatives aimed at growth and market share.Had presented the most aggressive proposals in 2000, none of which were accepted. Becoming frustrated with what he perceived to be his lack of influence in the organization. The Expenditure Proposals The forthcoming meeting would entertain the following proposals in Table 2: Table 2. Project proposals. Project Expenditure (euro millions) Sponsoring Manager 1. Replacement and expans ion of the truck fleet 33 Klink, distribution 2. A new plant 45 Leyden, production 3. Expansion of a plant 15 Leyden, production 4. Development and roll-out of snack foods 27 Morin, marketing 5. Plant automation and conveyor systems 21 Leyden, production . Effluent-water treatment at four plants 6 Leyden, production 7. Market expansion southward 30 Ponti, sales 8. Market expansion eastward 30 Ponti, sales 9. Development and introduction of new artificially sweetened yogurt and ice cream 27 Morin, marketing 10. Networked, computer-based inventorycontrol system for warehouses and field representatives 22. 5 Klink, distribution 11. Acquisition of a leading schnapps brand and associated facilities 60 Humbolt, strategic planning 1. Replacement and expansion of the truck fleet: Heinz Klink proposed to purchase 100 new refrigerated tractor-trailer trucks, 50 each in 2001 and 2002.By doing so, the company could sell 60 old, fully depreciated trucks over the two years for a total of EUR4. 05 million. The purchase would expand the fleet by 40 trucks within two years. Each of the new trailers would be larger than the old trailers and afforded a 15% increase in cubic meters of goods hauled on each trip. The new tractors would also be more fuel- and maintenance-efficient. The increase in the number of trucks would permit more flexible scheduling and more efficient routing and servicing of the fleet than at present and would cut delivery times and, therefore, possibly inventories. It -6- UVA-F-1356 would also allow more frequent deliveries to the company? s major markets, which would reduce the loss of sales caused by stock-outs. Finally, expanding the fleet would support geographical expansion over the long term. As shown in Exhibit 3, the total net investment in trucks of EUR30 million and the increase in working capital to support added maintenance, fuel, payroll, and inventories of EUR3 million was expected to yield total cost savings and added sale s potential of EUR11. million over the next seven years. The resulting IRR was estimated to be 7. 8%, marginally below the minimum 8% required return on efficiency projects. Some of the managers wondered if this project would be more properly classified as ? efficiency? than ? expansion.? 2. A new plant: Maarten Leyden noted that Euroland Foods yogurt and ice-cream sales in the southeastern region of the company? s market were about to exceed the capacity of its Melun, France, manufacturing and packaging plant. At present, some of the demand was being met by shipments from the company? s newest, most efficient facility, located in Strasbourg, France.Shipping costs over that distance were high, however, and some sales were undoubtedly being lost when the marketing effort could not be supported by delivery. Leyden proposed that a new manufacturing and packaging plant be built in Dijon, France, just at the current southern edge of the Euroland Foods marketing region, to take the burden off the Melun and Strasbourg plants. The cost of that plant would be EUR37. 5 million and would entail EUR7. 5 million for working capital. The EUR21 million worth of equipment would be amortized over seven years, and the plant over ten years.Through an increase in sales and depreciation and the decrease in delivery costs, the plant was expected to yield after-tax cash flows totaling EUR35. 6 million and an IRR of 11. 3% over the next 10 years. This project would be classified as a market extension. 3. Expansion of a plant: In addition to the need for greater production capacity in Euroland Foods? s southeastern region, its Nuremberg, Germany, plant had reached full capacity. This situation made the scheduling of routine equipment maintenance difficult, which, in turn, created production scheduling and deadline problems.This plant was one of two highly automated facilities that produced the Euroland Foods? s entire line of bottled water, mineral water, and fruit juices. The Nurembe rg plant supplied central and western Europe. (The other plant, near Copenhagen, Denmark, supplied the Euroland Foods northern European markets. ) The Nuremberg plant capacity could be expanded by 20% for EUR15 million. The equipment (EUR10. 5 million) would be depreciated over seven years, and the plant over ten years. The increased capacity was expected to result in additional production of up to EUR2. 5 million a year, yielding an IRR of 11. 2%. This project would be classified as a market extension. 4. Development and roll-out of snack foods: Fabienne Morin suggested that the company use the excess capacity at its Antwerp spice- and nut-processing facility to produce a line of dried fruits to be test-marketed in Belgium, Britain, and the Netherlands. She noted the strength of the Rolly brand in those countries and the success of other food and beverage companies that had expanded into snack food production. She argued that the Euroland Foods? reputation for wholesome, quality pr oducts would be enhanced by a line of dried fruits and, further, that name -7- UVA-F-1356 association with the new product would probably even lead to increased sales of the company? s other products among health-conscious consumers. Equipment and working-capital investments were expected to total EUR22. 5 million and EUR4. 5 million, respectively, for this project.The equipment would be depreciated over seven years. Assuming the test market was successful, cash flows from the project would be able to support further plant expansions in other strategic locations. The IRR was expected to be 13. 4%, slightly above the required return of 12% for new-product projects. 5. Plant automation and conveyer systems: Maarten Leyden also requested EUR21 million to increase automation of the production lines at six of the company? s older plants. The result would be improved throughput speed and reduced accidents, spillage, and production tieups.The last two plants the compan y had built included conveyer systems that eliminated the need for any heavy lifting by employees. The systems reduced the chance of injury by employees; at the six older plants, the company had sustained an average of 223 missed-worker days per year per plant in the last two years because of muscle injuries sustained in heavy lifting. At an average hourly total compensation rate of EUR14. 00 an hour, more than EUR150,000 a year were thus lost, and the possibility always existed of more serious injuries and lawsuits. Overall, cost savings and depreciation totaling EUR4. 3 million a year for the project were expected to yield an IRR of 8. 7%. This project would be classed in the efficiency category. 6. Effluent-water treatment at four plants: Euroland Foods preprocessed a variety of fresh fruits at its Melun and Strasbourg plants. One of the first stages of processing involved cleaning the fruit to remove dirt and pesticides. The dirty water was simply sent down the drain and into th e Seine or Rhine Rivers. Recent European Community directives called for any wastewater containing even slight traces of poisonous chemicals to be treated at the sources, and gave companies four years to comply.As an environmentally oriented project, this proposal fell outside the normal financial tests of project attractiveness. Leyden noted, however, that the water-treatment equipment could be purchased today for EUR6 million; he speculated that the same equipment would cost EUR15 million in four years when immediate conversion became mandatory. In the intervening time, the company would run the risks that European Community regulators would shorten the compliance time or that the company? s pollution record would become public and impair the image of the company in the eyes of the consumer.This project would be classed in the environmental category. 7 and 8. Market expansions southward and eastward: Marco Ponti recommended that the company expand its market southward to include s outhern France, Switzerland, Italy, and Spain, and/or eastward to include eastern Germany, Poland, Czechoslovakia, and Austria. Ponti believed the time was right to expand sales of ice cream, and perhaps yogurt, geographically. In theory, the company could sustain expansions in both directions simultaneously, but practically, Ponti doubted that the sales and distribution organizations could sustain both expansions at once.Each alternative geographical expansion had its benefits and risks. If the company expanded eastward, it could reach a large population with a great appetite for frozen dairy products, but it would also face more competition from local and regional ice cream -8- UVA-F-1356 manufacturers. Moreover, consumers in eastern Germany, Poland, and Czechoslovakia did not have the purchasing power that consumers to the south did.The eastward expansion would have to be supplied from plants in Nuremberg, Strasbourg, and Hamburg. Looking southward, the table s were turned: more purchasing power and less competition but also a smaller consumer appetite for ice cream and yogurt. A southward expansion would require building consumer demand for premium-quality yogurt and ice cream. If neither of the plant proposals (proposals 2 and 3) was accepted, then the southward expansion would need to be supplied from plants in Melun, Strasbourg, and Rouen. The initial cost of either proposal was EUR30 million of working capital.The bulk of this project? s costs was expected to involve the financing of distributorships, but over the 10-year forecast period, the distributors would gradually take over the burden of carrying receivables and inventory. Both expansion proposals assumed the rental of suitable warehouse and distribution facilities. The after-tax cash flows were expected to total EUR56. 3 million for southward expansion and EUR48. 8 million for eastward expansion. Marco Ponti pointed out that southward expansion meant a higher possible IRR bu t that moving eastward was a less risky proposition.The projected IRRs were 21. 4% and 18. 8% for southern and eastern expansion, respectively. These projects would be classed in the marketextension category. 9. Development and introduction of new artificially sweetened yogurt and ice cream: Fabienne Morin noted that recent developments in the synthesis of artificial sweeteners were showing promise of significant cost savings to food and beverage producers as well as stimulating growing demand for low-calorie products. The challenge was to create the right flavor to complement or enhance the other ingredients.For ice cream manufacturers, the difficulty lay in creating a balance that would result in the same flavor as was obtained when using natural sweeteners; artificial sweeteners might, of course, create a superior taste. In addition, EUR27 million would be needed to commercialize a yogurt line that had received promising results in laboratory tests. This cost included acquiring s pecialized production facilities, working capital, and the cost of the initial product introduction. The overall IRR was estimated to be 20. 5%.Morin stressed that the proposal, although highly uncertain in terms of actual results, could be viewed as a means of protecting present market share, because other high-quality icecream producers carrying out the same research might introduce these products; if the Rolly brand did not carry an artificially sweetened line and its competitors did, the brand might suffer. Morin also noted the parallels between innovating with artificial sweeteners and the company? s past success in introducing low-fat products. This project ould be classed in the new-product category of investments. 10. Networked, computer-based inventory-control system for warehouses and field representatives. Heinz Klink had pressed unsuccessfully for three years for a state-of-the-art -9- UVA-F-1356 computer-based inventory-control system that would lin k field sales representatives, distributors, drivers, warehouses, and possibly even retailers.The benefits of such a system would be shorter delays in ordering and order processing, better control of inventory, reduction of spoilage, and faster recognition of changes in demand at the customer level. Klink was reluctant to quantify these benefits, because they could range between modest and quite large amounts. This year, for the first time, he presented a cash-flow forecast, however, that reflected an initial outlay of EUR18 million for the system, followed by EUR4. 5 million in the next year for ancillary equipment. The inflows reflected depreciation tax shields, tax credits, cost reductions in warehousing, and reduced inventory.He forecast these benefits to last for only three years. Even so, the project? s IRR was estimated to be 16. 2%. This project would be classed in the efficiency category of proposals. 11. Acquisition of a leading schnapps2 brand and associated facilities. N igel Humbolt had advocated making diversifying acquisitions in an effort to move beyond the company? s mature core business but doing so in a way that exploited the company? s skills in brand management. He had explored six possible related industries in the general field of consumer packaged goods and determined that cordials and liqueurs offered unusual opportunities for eal growth and, at the same time, market protection through branding. He had identified four small producers of well-established brands of liqueurs as acquisition candidates. Following exploratory talks with each, he had determined that only one company could be purchased in the near future, namely, the leading private European manufacturer of schnapps, located in Munich. The proposal was expensive: EUR25 million to buy the company and EUR30 million to renovate the company? s facilities completely while simultaneously expanding distribution to new geographical markets.The expected returns were high: after-tax cash flows were projected to be EUR198. 5 million, yielding an IRR of 27. 5%. This project would be classed in the new-product category of proposals. Conclusion Each member of the management committee was expected to come to the meeting prepared to present and defend a proposal for the allocation of Euroland Foods? s capital budget of EUR120 million. Exhibit 3 summarizes the various projects in terms of their free cash flows and the investment-performance criteria. 2 Any of various strong dry liquors, such as a strong Dutch gin.Definition borrowed from American Heritage ® Dictionary of the English Language, 4th ed. -10- UVA-F-1356 Exhibit 1 EUROLAND FOODS S. A. Nations where Euroland Foods Competed Note: The shaded area on this map reveals the principal distribution region of Euroland? s products. Important facilities are indicated by the following figures: 1 2 3 4 5 6 7 8 9 10 Headquarters, Brussels, Belgium Plant, Antwerp, Belgium Plant, Strasbourg, France Plant , Nuremberg, Germany Plant, Hamburg, GermanyPlant, Copenhagen, Denmark Plant, Svald, Sweden Plant, Nelly-on-Mersey, England Plant, Caen, France Plant, Melun, France -11- UVA-F-1356 Exhibit 2 EUROLAND FOODS S. A. Summary of Financial Results (all values in euro millions, except per-share amounts) Fiscal Year Ending December 1998 1999 Gross sales 1,614 1,608 1,611 Net income 77 74 56 1. 13 1. 08 0. 81 Dividends 30 30 30 Total assets 716 870 984 Shareholders? equity (book value) 559 640 697 1,271 1,258 784 Earnings per shareShareholders? equity (market value) 2000 -12- UVA-F-1356 Exhibit 3 EUROLAND FOODS S. A. Free Cash Flows and Analysis of Proposed Projects1 (all values in euro millions) Project 1 2 Expand Truck Fleet (note 3) Investment Property Working Capital 3 New Plant (Dijon, France) 4 5 6 Expanded Automation Plant and (Nuremberg, Conveyer Germany) Snack Foods S ystems 7 8 9 10 Southward Expansion (note 5) Eastward E xpansion (note 5) A rtificial S weetener InventoryControl S ystem StrategicA cquisition (note 6) 30. 00 3. 00 37. 50 7. 50 15. 00 0. 00 -17. 10 -11. 85 4. 50 5. 25 6. 00 6. 75 7. 50 10. 50 11. 55 -45. 00 3. 00 7. 50 8. 25 9. 00 9. 38 9. 75 10. 13 7. 50 7. 88 8. 25 35. 63 -15. 00 1. 88 2. 25 2. 63 3. 00 3. 38 3. 75 2. 25 2. 25 2. 25 2. 25 10. 88 6 4 6 5 6 5 7 6 6 4 5 6 IRR Minimum Accepted ROR Spread 7. 8% 8. 0% -0. 2% 11. 3% 10. 0% 1. 3% 11. 2% 10. 0% 1. 2% 13. 4% 12. 0% 1. 4% 8. 7% 8. 0% 0. 7% NPV at Corp. WACC (10. 6%) -2. 88 1. 49 0. 41 3. 74 NPV at Minimum ROR -0. 19 2. 81 0. 82 Equivalent Annuity (note 2) -0. 04 0. 46 0. 13 Y ear 0 1 2 3 4 5 6 7 8 9 10 Undiscounted Sum Payback (years) Maximum Payback Accepted 2. 50 21. 00 0. 00 0. 00 4. 50 0. 00 30. 00 30. 00 EXPECTED FREE CASH FLOWS (note 4) -9. 00 -21. 00 -30. 00 -30. 00 -9. 00 4. 13 5. 25 4. 50 -9. 00 4. 13 6. 00 5. 25 4. 50 4. 13 6. 75 6. 00 4. 50 4. 13 7. 50 6. 75 6. 00 4. 13 8. 25 7. 50 6. 75 4. 13 9. 00 8. 25 7. 50 4. 13 9. 75 9. 00 8. 25 1 0. 50 9. 75 9. 00 11. 25 10. 50 9. 75 12. 00 11. 25 29. 25 7. 88 56. 25 48. 75 22. 50 4. 50 22. 50 0. 00 45. 00 15. 00 -27. 00 4. 50 6. 00 6. 75 7. 50 7. 50 7. 50 7. 50 7. 50 7. 50 7. 50 42. 75 -18. 00 8. 25 8. 25 7. 50 6. 00 -25. 00 -30. 00 7. 50 13. 50 16. 50 19. 50 22. 50 25. 50 28. 50 31. 50 88. 50 198. 50 5 6 5 6 3 4 5 6 21. 4% 12. 0% 9. 4% 8. 8% 12. 0% 6. 8% 20. 5% 12. 0% 8. 5% 16. 2% 8. 0% 8. 2% 27. 5% 12. 0% 15. 5% -1. 31 17. 99 13. 49 13. 43 1. 75 69. 45 1. 79 0. 48 14. 85 10. 62 10. 97 2. 67 59. 65 0. 32 0. 09 2. 63 1. 88 1. 94 1. 03 10. 56 1 The effluent treatment program is not included in this exhibit. The equivalent annuity of a project is that level annual payment that yields a net present value equal to the NPV at the minimum required rate of return for that project. Annuity corrects for differences in duration among various projects. In ranking projects on the basis of equivalent annuity, bigger annuities create more investor wealth than smaller annuities. This refl ects EUR16. 5 million spent both initially and at the end of year one. 4 Free cash flow = Incremental profit or cost savings after taxes + Depreciation Investment in fixed assets and working capital. 5 Franchisees would gradually take over the burden of carrying receivables and inventory. 6 EUR25 million would be spent in the first year, EUR30 million in the second, and EUR5 million in the third. 2

Analyzing the legalization of drugs

Introduction The increase in the drug cases during the years has lead several propositions from various individuals, one of which is the legalization of drugs. Since the widespread use of illegal drugs has eventually persisted throughout the expanse of time, and with the failure to contain the issue of illegal drug use, one suggested solution is to amend the law by legalizing the use of drugs or by putting it finally under the control and mandate of the law. However, the judicial system has had to cope with the situation. The need to reexamine the existing methods of managing and handling these drug cases proportionally rose with the persistence of illegal drugs amidst existing legal sanctions. This had led to the processing of drug cases not only in court but even outside the court. This is to cope with the great number of drug offenders of varying levels getting apprehended everyday. There were several judicial strategies conceived in order to deal with the massive amount of drug cases. These judicial strategies include the creation of specialized divisions of a drug court in some trial courts, sped-up case processing procedures, deferred prosecution programs requiring court-supervised treatment and counseling and more. There are also combinations of these strategies, all to speed-up the processing of these cases. These cases are screened beforehand in order to know what degree and what level of judicial supervisions would be applicable for the case. This is also essential for early treatment intervention and rehabilitation of the offenders, so as to stop the continued drug abuse and the likelihood of crimes. On the other hand, arguments for the legalization of drugs are constantly being hurled forward in order to finally resolve the existing contentions against the ill-effects of drugs as well as for the perceived benefits both the government and the individuals can actually obtain from legalizing these substances. Arguments for the legalization of drugs One of the most common drugs in the society today is Marijuana. It is known scientifically as the hemp plant, Cannabis sativa, where the leaves are being dried up, rolled into sheets of paper and be smoked just like cigarette or tobacco. It is the most often used illegal drug in the world, known in various names all over, like â€Å"pot,† â€Å"herb,† and â€Å"Mary Jane.† Some users can make use of marijuana by mixing it into food substances or drink it by brewing it with tea. The addictive element of marijuana is its Tetrahydrocannabinol or THC content. The effect of marijuana would depend on how strong or how potent is its Tetrahydrocannabinol content, thus also giving various effects on the marijuana users (Dell and Snyder 630). One of the reasons for finally legalizing drugs, especially marijuana, is founded on the historical context of the â€Å"illegal† substance. In America, for instance, those who lived in the area of Jamestown back in 1611 raised marijuana under the order of King James I for the purpose of crafting rope for the naval force of the British. The â€Å"herb†, as it has been called, also served as a medicinal substance specifically for George Washington who planted marijuana within the premises of Mount Vernon and that the plant was categorized as a prescription medicine until 1937 (Smith 101). Marijuana also has positive sides which can be used as an argument for its eventual legalization. One of the beneficial effects of the use of marijuana rests on its utility for the control of symptoms, especially in chemotherapy procedures, as an â€Å"effective antiemetic† among patients with health profiles such as cancer and â€Å"AIDS patients with wasting syndrome† which led to â€Å"a greater ability to cope emotionally with disabling or life-threatening illness (Gorman 23). Moreover, under the rule of Emperor Chen Nung of ancient China five centuries ago, marijuana has been declared as well as a plant that has medicinal value in terms of curing malaria, rheumatism, constipation, â€Å"absentmindedness† as well as the claims for mental and bodily disorders suffered by women (Grinspoon and Bakalar 3). There is also the contention for the prospect of establishing a regulated drug market which can be a profitable source of government tax. This idea illustrates the observation that the widespread use of illegal drugs and its potential to be a market commodity can overcome the legal restrictions ascribed unto it.   A controlled degree of the regulation of marijuana, for example, creates, instead, an increase in government revenues that may outweigh or, at least, come close to the actual government payments on law enforcement against the production, distribution and consumption of marijuana (Caputo and Ostrom 475). Refutations Drug Abuse is one of the most common criminal cases in the society today. It is a form of substance abuse, just like alcoholism, since these illicit drugs are actually addictive in nature. Because of this, many people who are hooked on drugs cannot easily let go of the addiction, and would often lead to drug-related crimes like robbery, physical assault, or even murder. Not only does these drugs dangerous to others, but it is also harmful in the drug users’ body, causing the body to take into negative turns, like deterioration and organ failures. When a person smokes or inhales marijuana smoke, he would usually feel rapid heart beats, loss of coordination and decreased sense of balance, slow reaction rate and a dry mouth. These are already signs of marijuana intoxication, along with the expansion of blood vessels in the eye, that’s why marijuana users usually have red eyes. The effects of marijuana would usually last two to three hours, where the marijuana user would usually tend to be sleepy. The negative effects of using marijuana would be hindering the user’s short term memory, wherein it would be difficult for him to remember recent events. This would usually lead to car crashes and other accidents, since their sense of coordination is greatly affected. Another dangerous drug would be cocaine. This drug’s effect on the body is really damaging, where addiction to cocaine could bring about permanent damages in one’s body or even death. Cocaine has both short term and long term effects. The short term effects are immediately noticeable, but not that damaging as compared to the long term ones. The common short term effects are a feeling of boosted energy, a decrease in a person’s appetite, and a rather hyped heart rate and blood pressure. There are still many other types of illegal drugs and similar forms of substances that create ill-effects to the overall health of individuals, oftentimes resulting for them to commit crimes that they could not have possibly committed had they not taken these illegal substances. Conclusion Although several illegal substances can actually bring forth benefits for individuals, the negative consequences outweigh these positive sides. Further, not all of these substances have positive effects when used, and that the negative consequences of illegal drug use oftentimes lead to crimes and violence. For these reasons along with the refutations against the legalization of drugs, it can be asserted that the legalization of drugs should not be taken as the ultimate measure for solving illegal drug issues. Rather, the reasons behind the legalization of drugs should be taken as a means in finding the deeper refutations against it. References Caputo, M. R., and B. J. Ostrom. â€Å"Potential Tax Revenue from a Regulated Marijuana Market: A Meaningful Revenue Source.† American Journal of Economics and Sociology 53.4 (1994): 475-90. Cocaine-Effects.com. â€Å"Cocaine Effects.† 2001. Dell, D. D., and J. A. Snyder. â€Å"Marijuana: Pro and Con.† The American Journal of Nursing 77.4 (1977): 630. Gorman, M. â€Å"Substance Abuse.† The American Journal of Nursing 97.11 (1997): 23. Grinspoon, L., and J. B. Bakalar. â€Å"The History of Cannabis.†Ã‚   Marihuana, the Forbidden Medicine. London: Yale University Press, 1997. 3. Smith, G. R. W. â€Å"Possession of Marijuana in San Mateo County: Some Social Costs of Criminalization.† Stanford Law Review 22.1 (1969): 101.   

Galileo - 1646 Words

Pueblo Community College Galileo Life after punishment Joe Davalos History 102 Western Civilization II Mr. Richard L. Rollins May 1, 2014 Joseph Davalos Mr. Richard Rollins History 102 Western Civilization II April 10, 2014 Galileo: life after punishment Galileo Galilei, born February 15, 1564 was a mathematics professor a scientist, astronomer and physisist. He attended the University of Pisa to study medicine in 1583. He was fascinated with many subjects, particularly mathematics and physics. During his studies at Pisa he was exposed to the Aristotelian view. In 1585, due to financial difficulties Galileo left the university before earning his degree. Galileo continued to study mathematics, supporting†¦show more content†¦However, Galileo did begin to mount a body of evidence that supported Copernican theory and contradicted Aristotle and Church doctrine. In 1612, he published his Discourse on Bodies in Water, this refuted the Aristotelian explanation of why objects float in water, he said it wasn’t because of their flat shape but the weight of the object in relation to the water it displaced. In 1613 He published his observations of sunspots, which further refuted Aristotelian doctri ne that the sun was perfect. According to biography.com, this same year, Galileo wrote a letter o a student to explain how Copernican theory did not contradict Biblical passages, stating that scripture was written from an earthly perspective and implied that science provided a different, more accurate perspective. The letter was made public and Church Inquisition consultants pronounced Copernican theory heretical. According to the Catholic Encyclopedia, hearing that some had denounced his doctrine as anti-Scriptural, Galileo presented himself at Rome in December, 1615, and was courteously received. He was presently interrogated before the Inquisition, which after consultation declared the system he upheld to be scientifically false, and anti-Scriptural or heretical, and that he must renounce it. This he obediently did, promising to teach it no more. Then followed a decree of the Congregation of the Index dated 5Show MoreRelatedGalileo1113 Words   |  5 PagesGalileo Galilei Galileo Galilei was considered the central figure of the scientific revolution of the 17th century. His role in the history of science was a critical one. He revolutionized the way in which science was conducted, and performed experiments to test his ideas, which led him to be regarded as the father of experimental science. Galileo was born on February 15th, 1564 in Pisa, and was the oldest of seven children. His father, Vincenzo Galilei was a famous composer, lutenist, and musicRead MoreThe Life of Galileo1545 Words   |  7 Pagesand in doing so, embark on a quest to find their true identity and place in life. 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In motion, his famous scientificRead MoreThe Success and Intentions of Galileo Essay733 Words   |  3 Pagesâ€Å"Galileo has been depicted variously as a cynical opportunist, patient genius o r lucky engineer, and dies a coward or a modern Socrates.† I agree that he is a patient genius, and lucky engineer, but I do not agree that he is a cynical opportunist, coward or a modern Socrates. Galileo was a mathematician and a natural philosopher, who converted Copernicanism, which states that the earth revolved around the sun, into philosophy and the world’s true nature. By introducing new knowledge and using science